tv [untitled] September 18, 2012 4:30pm-5:00pm EDT
thanks. good afternoon welcome to capital account i'm laurin lister here in washington d.c. these are your headlines for tuesday september eighteenth two thousand and twelve the foot in mouth indicator or take a listen. or sober show or. leave it there leave the girl in all those little there are. no longer oh you. everyone's heard of by now but what is the foot in india could put in indicator say about the barricades for mitt romney but not only that also rock
obama when it comes to the economy plus the case that the u.s. is in recession now why the fed hit the panic button with q.e. to infinity and europe's most dangerous politicians all with mike's deadlock and speaking of the fed according to a report posted on the nasdaq's web site investors plowed more than fifteen billion dollars into e.t.f. just last week in anticipation of q e three but what exactly is an exchange traded fund anyway and more importantly what is in the fine print we will break it down in word of the day plus g.e.'s medical imaging health care business is reportedly slowing down but this is in part because of changes g.e. made to the health plans of its own workers will explain let's get to today's capital account.
our guest today mike shad locke many of you know him well from our show on his blog he wrote on his blog that foot in mouth disease appears to be at least as important as the economy in this u.s. presidential election and given mitt romney's recently exposed comments where he said forty seven percent of voters are entitled and dependent on the government and his job is not to worry about them it seems the foot in mouth indicator may be something to pay attention to and while it appears bearish or to be a bearish indicator for mitt romney right now the real question is if there is a bullish case at all for the economy when it comes to either the republican or
democratic presidential candidate and what is then the true state of the economy anyway because that's an important baseline to be coming from our guest says the u.s. is in recession now he's sticking to it whether you agree or not what exactly would drive the fed to unleash a q.e. program like this. q.e. from here to eternity we don't know that's the thing joining me today to discuss all of this is mike block better known as misha investment advisor at sic a pacific capital and author of the popular blog mischa's global economic analysis mike said locke welcome back to the show thanks so much for being on today. and once again more unlovely in our news shows are you oh we love having you so do our
viewers so i love how you put this whole romney gaffe which is not just about this gaffe but many presidential election year in gas we've seen you call it the foot in mouth disease and according to your electoral college prediction you say the math is not working out not looking good for mitt romney but that aside i want to talk economy because this is after all an economic show i thought it was interesting on your blog you said you won't vote for either candidates romney nor obama so why do you think both of these guys would be barren choices for the economy. just look at what they're going to do mitt romney has promised that he would label china a currency manipulator and obama is joining him and ohio with new trumped up charges in the world trade organization trying to keep up with the roommate so both of them are likely to start a trade war with china i think i'm a i'm a free trade advocate so i think that's a bad move now i think romney will be worse i think romney is going to do what he
says and i've had people come in to me as a mission what makes you think you know these guys are really going to do what they say that interesting point except usually if they come out and they say they're going to do something devastating well they probably well that's the end sort of the sad state of affairs there of they say they're going to do something bad well you know the same hell bent on a lot so romney's pledge to raise military spending i think that's a disastrous policy and i think we might even see an out and out war with iran if he gets elected you know what would that do to the price of oil what would it do to the global economy if he does so either one of the which everyone wins we've got tax hikes coming up next year. and we need to do something about the deficit i'm not convinced romney is going to do any more about a bomb is that something i don't believe so where are we i don't like either of
them right you know it's interesting because just anecdotally so many of the conversations that i have had recently with both people that are involved in business and finance or politics and people that aren't is that they don't feel like they have anyone to vote for your echoing the same thing so do you think that there's a portion of the population that really is just has no where to turn when it comes to how they feel about fiscal policies how the economy is managed at and candidates role in that. well sir only fall where they get their news from they get their news from if they get news at all from c.n.n. b.b.c. or the talk or the view they should be listening to capital account to defend the air they of but they just don't show an interest in the economy start talking to people about the economy well if you ask them how their job is doing sure they'll give you an opinion but most of the stuff they you hear
they're just echoing the keynesian policies of of bernanke you or you know we really can't we really need to keep troops everywhere you know everything is so polarized no one wants to sit down and have a have an honest talk about what sustainable center called burn actually got a a email from one of his aides you know asking me something about the state of disability fraud and i was very pleased to get an e-mail from this from a top aide to a senator on that but you know for that and he was one of the more pragmatic ones but look what happened to him he was in that was the gang of five they tossed him out they came up with this no compromise situation they kicked the can down to these tax hikes that are supposed to be automatic now in january but no one
wants them yet what are we going to do again no it does seem like there really are no good options that are actually viable options for voters in many cases that when it comes to the economy mesh let's talk about where we are now because people have different forecasts you have some people worried about the chance of recession with the u.s. headed towards this fiscal cliff but you say flat out the u.s. is in recession now this is something you were on our show talking about in july you're sticking to it so what is your case for a recession now given specifically recent. data that we may have gotten since july when you were last on. a little less two job reports lauren were absolutely horrendous i mean i was stunned if you actually look at the internals of these things now efficiently reported to a gain of ninety six thousand jobs but actually if you look at the household survey and it's the household survey that determines the unemployment rate as you know five hundred and seventy thousand people dropped out of the labor force this
last report nine hundred seventy one thousand reduction in the labor force in the last two months actual employment by the household survey went down a hundred and nineteen thousand in august it went down the last month it went down over one hundred thousand the previous month over two hundred thousand i think the household survey leaves at economic turns i think we're in an economic turn here and all of the regional manufacturing reports for first several months now have been bad california tax revenue is bad. gasoline usage is plummeting diesel uses is flowing the only bright spot that i can point to at all in the last few months of any of the economic reports was was the latest i asked them
a survey on services but my understanding is they only serve a very very small portion of companies here you know what if you're extrapolating the large companies and the slowdown is happening at the small companies and individual orders and small businesses laying off they're not going to pick that up yet and i think that's what happened learn well and it's really interesting that take a point i think it's interesting what was posted on your blog an e-mail that was thank you ensign chart. because you mentioned gas you mentioned oil and this was a lead analyst for the weekly petroleum supply team of the energy information administration he sent you some charts he sent you an email you posted on your web site writing that these numbers do not tell me that we're in a recovery the decline year over year and three quarter transportation indicators a sense you suggest in his words a slowing in the economy it's not a recession so what do you think is the significance of this analyst when in on on
your forecast he's he actually sent me an e-mail and actually i tip my hat to mr buck for allowing his name to be a government official owling his name to be quoted in a way that saying you know what the economy's not doing so good so i thank him for that. he just confirms the other charts that i had on my blog a chart sent to me by a reader named jim wallace he looks at the weekly reports well this analyst for the government sent me these reports and he says well our monthly charts confirm exactly what you've been saying it's across the board it's diesel it's just it's gasoline i've had people tell me almost you know this is just improve gas mileage i'm sorry laura that doesn't add up gasoline mileage just didn't start to improve in the last few years right as the recession had so something else is going on we did see
a recovery actually. in two thousand and ten with sense given it all back and some of these numbers are back to two thousand to use it on some of these reports so there's a lot more going after this then just a simple oh it's gas mileage improve i don't think so he doesn't think so and it centers all kinds of yeah i think the thing that i do want to get to then why you think that the fed reacted to presumably jobs with q. week to infinity your post was titled panic as in the fed is panicking so what is the fed panicking about if not jobs i think them out and said to infinity and be all but. that's the way burnett is out a year now lord so i don't know but it's not just for the idea you're we're seeing the same thing mary oh directing the e.c. be president but what really spooked him i think were those jobs numbers i think he
looked at those things like gosh we've lost almost a million out of the labor force in the last month my god i think i was a vegetarian that would spook me too but what i don't tell you about it no i mean look what he's doing is lowering interest rates what good did that do for japan they've had lower interest rates for dwane years it's not spurred in the employment is now it's brought investment is not spur hiring and certainly these you know what the two presidential candidates have promised to do try and outdo each other on who's going to start the biggest trade were with china like gosh that's going if if they put these tariffs on which is what they're wrangling out it's going to raise prices well the last thing that consumers made to do need to have done to them is have prices of of cars and shirts and clothes and everything else start
shooting up because it's not going to bring back any jobs it's just not going to employed inflation and it remains to be seen measured we may never know if them bernanke was sitting there saying let's do q.e. because he thinks like you that maybe the u.s. is looking at something worse than a bad job situation that this is a leading indicator to recession or that we're in one but want to leave it there for today thank you so much mike said locke investment advisor for sick of pacific capital but hear me on the show lawrence. and still ahead we'll have a new word of the day for you and if you think harvard grads have the best shot at being successful that may not be the case we'll explain in loose change but first your closing market numbers.
right it's time now for word of the day we're bringing it back where we break down a financial term or concept for our smart viewer but just maybe not the financial expert and today it is e.t.f. or exchange traded fund given this exchange traded funds are poised to overtake credit derivatives by year end as a way to speculate on junk bonds and there was also this from last week investors
plowed more than fifteen billion dollars into e.t.s. in the past week lifting assets to a record amid expectations that the federal reserve would launch a third round of quantitative easing now by attracting those looking to invest in nontraditional assets and sectors the global e.t.f. market look at that it's inflated to more than a trillion dollars in assets over the past few years and some now actually put the . that number at about two trillion dollars now david kotok who is a guest of ours wrote a book on e.t.s. and he spoke about them on our show recently take a listen. so here it has revolutionized the options for an investor can take a million dollars and i could replicate a year all university foundation account in the billions because of these instruments however talk warns that investors should conduct serious research before purchasing shares in any and we will explain why shortly but first what
exactly is an exchange traded fund well here is our definition let's take a look at that e.t.f. there are portfolio or a basket of securities which provide diversification i don't like mutual funds yet they're unique in that they trade on next on an exchange just like a common company's stock now they usually track an index either holding the underlying stocks of the index or using derivatives to achieve the same turns as the end decks and since an e.t.f. is designed to track a specific market index one can play an entire sector without being forced to stomach the volatility and here in any one stock and let me give you an example investors can gain exposure to precious metals using e.t.f. specifically gold and gold miner e.t.s. have become increasingly popular but why would anyone want to own shares in a gold e.t.f. in the first place. i don't have a problem if you want to buy gold but if you're going to buy gold don't buy the actual commodity because you have to store it you have to have it we ask if you
sell it can but buy an exchange traded fund that invests in gold. there you have it like suzy orman says buy an exchange traded fund if you invest in gold but if you buy shares in a gold e.t.f. like the g.l.d. for example which is the largest gold e.t.f. in the world do you actually own gold the answer is no you're effectively buying shares in a fund indexed to the gold market this is not the same thing is buying physical gold bullion and storing it in allocated vaults which is a key distinction in fact according to the e.t.f. own perspective the average investor can only redeem their gold shares for cash only those who have very large holdings in a fund like g l d have the option to redeem their shares for physical gold this requires somewhere in the neighborhood of one hundred thousand shares which translates into millions of dollars and even then it's
a difficult process also in the case of g l d let's take a look at the prospectus because the trust does not ensure it's gold which means it may not have adequate sources of recovery if it's gold is lost damaged stolen or destroyed and this may surprise you when reading the prospectus as we have the amount of gold represented by the shares will continue to be reduced during the life of the trust due to the sales of gold necessary to pay the trust expenses irrespective of whether the trading price of the shares rise or falls in response to changes in the price of gold wait a minute the so-called pot of gold shrinks got a deal of that and finally one more look at the perspective because gold held in the trust an allocated gold account and any authorised participants an allocated gold account will not be segregated from the cost. audience assets hon if the custodian becomes insolvent its assets may not be adequate to satisfy
a claim by the trust or any authorised participant now that's may sound confusing but in basic english sounds like if the custodian in this case h.s.b.c. runs into trouble it may not be able to make good on your claim so it would appear that the only way to protect yourself as an investor when it comes to e.t.s. is to do detailed research on the fund its assets and carefully read as prospectus and even then you're still dealing with the counterparty risk now this is why some would argue the buying a gold liability which is what ability to get is defeats the purpose of owning gold in the first place as precious metals are one of the few asset classes accessible to average investors that are not simultaneously another person's liability and we've talked a lot about that and other episodes but in any case now you know about e.t.s. and if you're interested you know to get your reading glasses out and ready to dissect the fine print.
arliss wrap up with loose change dimitri co phoenix lauren lyster have i got a story for you. all right you're going to like this g.e. takes a lot of pride in our company evidently whether it be building jet engines or building medical machines to. help identify early stages of cancer. is something that we're extremely proud of and have that special equipment be able to look inside and find these kind of things early is pretty special. that's steep but now their medical imaging business has to shrink and it's partially because the company's own health insurance has changed you heard me right
so this is according to an article in the wall street journal the company put eighty five thousand employees on a high deductible health plan which was supposed to cut some costs for g.e. and it led for more people to pay out of pocket for m.r.i.'s and c.t. scans which then they just couldn't really afford so they stopped having them well this is part of the reason that the medical imaging of g.e. had its growth in two dimitry well that's something that's remarkable i mean is this how big the market is that either of this is the size of g.'s employee pool that they're affecting the demand side of the g. or i lost my train of thought you wanted to make what kind of response is that with this reminded me of what i thought i was how henry ford reportedly he used to pay his employees and off money. so that they could afford cars so that they could afford to be customers because he thought that that is what would be good for his
business i think this is interesting because we're seeing the flip side of it where g.e.'s medical imaging business is shrinking because their customers can no longer afford this service because their health benefits don't cover anymore they have higher deductible i lucked out and work for a guy was a true capitalist i mean i agree a biography ok guy was great but you know that made more sense to me because you know you can i mean i don't know if i want to the business of helping my employees get our eyes you know you may or whether you don't want to give them or if you need one but it's like. cars i understand oh you want to stand cars but not one from a city there's no i mean i know i know i do or you know what i mean so it's not exactly like a pleasant thing you've ever gotten m.r.i. it's low noise is flipping around in there it's scary it's not something you want to do and go automobile. yeah well i just thought it was interesting in the article jeff immelt the chairman of g.e. was saying that they always looked at their their health care business as a hedge because whatever they spent on employee cost for health care would kind of come back. and it just shows how big. it was right very
very horizontal multinational corporations almost an economy and to themselves absolutely yeah. i'm going on that deep note i'm going to i'm going to switch gears because this is a great story would you believe me dimitri the new movie if i told you that harvard graduates are making less out of school then graduates out of a school in south dakota here's a look. but an average harvard grad just graduate two thousand and twelve is being out earned by a graduate that's all paid almost four times less from a school because most famous state is known for mt rushmore go figure. that is a pretty good return on your investment if you went to the south dakota school of mining and technology would you be feel jilted if you graduated from harvard and were even making as much as some of the paid far less for a school and with a less prestigious degree no good this just shows you got a bunch of people are going to. look we need as more people that actually go and
get the grease that actually help them get a job in the real world not these these university agrees they pay out of that they get to take out loans to get a degree in the can get a job and they're crying cause it was all over i'm sorry so are you guys get a real world job get a real world experience i'm sorry i got i'm ugly i love covering the story because there's literally throws the whole thing about your universe the grease in the face of all these people who were ivy league schools or the reserve big incomes and you know well maybe dimitri people are listening to your advice because take a listen to this speaking of jobs speaking of call age there has been a downtick and people apply to get their m.b.a. look at this. sixty two percent of u.s. schools reported a decline in m.b.a. application that compares to the seventy nine percent gain at schools in the asian pacific region. after he says for full time two year m.b.a.
programs are down for the fourth year in a row dimitri do you think that business students being more business minded perhaps in society are gone ha i'm going to spend a lot of money on school i don't know if there's going to be the return on investment when i get out and maybe they're catching on absolutely or they're probably more businesses that they figured out plus you know i'm just never really i guess i don't know i mean i want to be biased against some b.s. but nothing this is a perfect example of i mean the best. business experience actually being in the real world so what if there are about as them is i don't know i would say yes on the hall yes business people are much more astute they understand the economy so this is probably a leading indicator so harvard everyone else get on board if you're a student though they've got more these guys they figure it out because we have a curve leading in to go. go go to the m.b.a. indicator we'll leave it at that is in a bubble ok all right well even there because that's all we have time for thank you
so much for watching and have a great night and in the mean time you know you can follow me on twitter at the end lester give us feedback on the show and you missed it you tube dot com slash capital account you can watch us an h d on hulu at hulu dot com slash capital dash accounts have a great night. for you.